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"The need to create employment and a better
life for our people is the central objective of the economic policy of this
government. The Reconstruction and Development Program (RDP) remains the basic
policy framework to achieve this objective.The Growth, Employment and Redistribution (GEAR) program is the
associated macroeconomic strategy used.At the beginning of this year the President announced an Action Plan to
Accelerate Growth.This action plan
marked an increased emphasis on macroeconomic reform to further increase
investment…"

Alec Erwin, Minister of
Trade and Industry, May 2001

"In contrast to this political progress, in socio-economic
terms the legacy of apartheid remains entrenched and, with the massive loss of
jobs in the past decade, even appears to be worsening.Wealth is still concentrated in a white
minority. The nature of capital remains largely the same - concentrated in the
mining-finance complex, which continue to dominate the commanding heights of
the South African economy.Serious
inequalities persist, with signs of worsening particularly among the formerly
oppressed.The number of people living
in poverty is staggering.Almost half of
the population lives in poverty, including many of the employed - the
"working poor."Unemployment
and underemployment are on the rise as more jobs are shed and people rely on
survivalist activities to make ends meet.The complex nature of the transition emerged in deeply contradictory
government policies."

COSATU policy statement, July 2001

Economic
Statistics

Gross Domestic Product, 2000 (market prices):
R873,637

1996

1997

1998

1999

2000

GEAR

Predicted

Average

Actual

Average

Real GDP

Growth

4.2

2.5

0.7

1.9

3.1

4.2

2.5

Inflation

7.4

8.6

6.9

5.2

5.3

8.2

6.7

Budget Deficit

(% GDP)

4.6

3.8

2.3

2.4

3.7

Labor in the
Non-Agricultural Sectors

Percentage
change

Period

Public Sector

Private Sector

Total

1996

3.4

-2.6

-0.7

1997

-0.3

-2.5

-1.7

1998

-1.6

-4.8

-3.7

1999

-3.3

-1.3

-2.0

2000

-4.1

-2.3

-2.9

Note:Rand to dollar conversion is
approximate; R1 = $0.1212.

Unemployment
Rate

1996

1999

Strict Definition

19.3%

23.3%

Expanded Definition

33.0%

36.2%

Manufacturing -
Average Total Number of Employees

1994

1995

1996

1997

1998

1999

2000

1,427,045

1,431,008

1,456,393

1,396,429

1,339,328

1,306,933

1,288,438

Legacy
of Apartheid

Since
the early days of colonial rule, poverty and unemployment have been much higher
for South Africans of color.Today,
according to the South Africa government's National Report on Social
Development, 1995-2000, 61% of Africans are classified as poor compared
to just 1% of whites.The unemployment
rate for Africans is 42.5% compared to 4.6% for whites.

The Congress of South African Trade Unions
(COSATU) recently noted: "While Africans make up 76% of the population,
their share of income amounts to only 29% of the total. Whites, who make up
less than 13% of the population, take away 58.5% of total income."

Overview
of Government Policy

In
1994 when the government of national unity, led by the African National
Congress, took power, it inherited a country of gross inequities with high
unemployment.While significant progress
has been made in education, health care, housing and providing basic services,
poverty continues to be widespread, income disparities remain, unemployment is
still high and many people lack necessities.

The
basic economic macro-economic policy of the South Africa government is known as
Growth, Employment and Redistribution (GEAR) plan.The basic social development policy, the
Reconstruction and Development Programme (RDP),
addresses needs such as housing, land, health, education and services.

Reconstruction
and Development Programme

In
the early 1990s unions, the civic movement and social organizations began to
develop a plan for social transformation needed for post-apartheid South Africa.A process developed which involved extensive
consultations within the ANC, its allies and a wide range of experts that
resulted in 1994 in the Reconstruction and Development Programme.The RDP aimed at addressing the many social
and economic problems facing the country.A key aspect of the RDP was that it linked reconstruction and
development.The RDP recognized that all
the problems (lack of housing, a shortage of jobs, inadequate education and
health care, a failing economy) are connected.It proposed job creation through public works — the building of houses
and provision of services would be done in a way that created employment.The five key programs were: meeting basic
needs, developing human resources, democratizing the state and society,
building the economy and implementing the RDP.

Selected RDP
Goals

Housing:
Provide
well-located and affordable shelter for all by the year 2003. Build one
million houses in five years

Water:Supply 20 to 30 liters of clean water each
day to every person in two years and 50 to 60 liters per day within five
years from a point no more than 200 meters from their dwelling.

Electricity:
Supply
2.5 million more households and all schools and clinics with electricity by
the year 2000.

Health
care: Give
free medical care to children under 6 years and to homeless children; improve
maternity care for women; organize programs to prevent and treat major
diseases like TB and AIDS.

Land
reform: Implement
land reform based on redistribution of residential and productive land to
those who need it but cannot afford it and restitution to those who lost land
because of apartheid laws.

Job
Creation through public works: A national public works program to provide basic
needs such as water supply, sewerage and roads and at the same time create
jobs, particularly in poor and rural areas.

Social
security and social welfare: A new system to provide for all people regardless
of their race, gender or physical disability.A pension system to meet the needs of works in the formal and informal
sectors.

Education
and training: Literacy for all, equal opportunity, 10 years of free and compulsory
education, class sizes of no more than 40 pupils, training workers to meet
the challenges of the new political and economic conditions.

Growth,
Employment and Redistribution

GEAR
is a macroeconomic strategy adopted by the Department of Finance in June 1996
as a five year plans aimed at strengthening economic development, broadening of
employment, and redistribution of income and socioeconomic opportunities in
favor of the poor.GEAR remains
government policy.The key goals of the
policy as originally outlined were economic growth of 6% in the year 2000,
inflation less than 10%, employment growth above the increase in economically
active population, deficit on the current account and the balance of payments
between 2 and 3 percent, a ratio of gross domestic savings to GDP of 21.5
percent in the year 2000, improvement in income distribution, relaxation of
exchange controls and reduction of the budget deficit to below 4 percent of
GDP.

Impact
and Policy Debates

GEAR

The
government has significantly lowered the budget deficit and inflation.But South Africa's growth rate remains at
about 3%, far short of the 6% goal which is seen as necessary to reduce
unemployment.The government stands by
the GEAR policy, saying that long-term it will provide South Africa with the most economic
growth.

One of the most outspoken critics of GEAR is the
Congress of South African Trade Unions (COSATU), a federation of 19 unions with
a combined membership of over 1.8 million.Because of its size, ability to organize its members and its alliance
with the ANC, its views cannot be ignored by the government.

COSATU says that GEAR has failed to deliver the
promised economic and job growth or significant redistribution of income and
socio-economic opportunities in favor of the poor.They say GEAR, with its focus on stringent
monetary and fiscal targets, conflicts with the goal of the RDP of growth based
on job creation, meeting people's needs, poverty reduction and a more equitable
distribution of wealth.COSATU notes
that the government is committed to increased spending
on basic service and spending did increase between 1994 and 1996.A recent COSATU policy document concludes,
"The GEAR
brought about deep cuts in government spending between 1996 and 1999.As a result, efforts to improve services to
the poor suffered, despite the continued reprioritisation
of spending from the rich to the poor."The National Labor and Economic Development
Institute (NALEDI), a COSATU formed research institute, says that the necessary
preconditions for success did not exist in South
Africa as a result
"even though the national budget deficit was slashed, the positive
consequences anticipated by GEAR did not result."

The
government acknowledges GEAR's stringent limits on expenditure limits the ability to meet social
development goals of the RDP.As the
South African National Housing code notes "The most significant goals of GEAR in respect of our capacity to
implement the housing programme are those that have
to do with availability of funds for housing.GEAR is clear about promising tighter fiscal
policy measures, which are being brought about by a cut in government
expenditure and a more cost-effective civil service… Consequently, it is
unlikely that government will have the capacity to expand the scope of
subsidies or grants, beyond those already accepted as housing policy."

Much of the debate has focused on employment and
poverty.The official government agency
Statistics South Africa said unemployment was 22.5%, down from 23.3% in
1999.But this is a narrow definition of
unemployment - only including those actively seeking work, excluding
discouraged job seekers.COSATU says
that using the broader definition unemployment rose to 37.3% from 36.3% in
1999.

South
African President Thabo Mbeki said in his annual
state of the nation address in February 2001 that there had been a net gain of
1.1 million jobs between 1996 and 1999. But these jobs are largely in the
informal sector.NALEDI noted in
December 2000 that some official estimates suggest that up to one million jobs
in the informal sector have been created since 1995, but the opposite was the
case in the formal sector:

"Between 1996 and 1999 more than 400,000 formal
sector jobs were lost.The impact on
families is disastrous, as there is little in the way of social security
protection for the unemployed.The jobs
that are being created are generally informal and lowly paid positions."

The
net result, notes NALEDI, is that the income of the poorest 40% of the
population has declined by 20%.NALEDI
concludes: "It is now widely acknowledged that the Growth, Employment and
Redistribution strategy (GEAR) has, despite its name, failed in terms of
economic growth, creation of quality jobs and redistribution towards the
poor…[G]overnment is increasingly feeling the
pressure to address the wider socio-economic failures of economic policy."

Privatization
and Restructuring of State-owned Enterprises

The government has announced plans to privatize
and restructure state-owned enterprises including Eskom (the electrical
electricity supplier), Transnet (transportation of freight and people), Telkom
(communications) and Denel (aviation, guided weapons
and ordnance).Privatization would
include converting the enterprises to companies owned by shareholders.Restructuring includes commercializing (undertaking
operations for a profit) and corporatizing(registration of the company under the
Companies Act).

COSATU and others have opposed privatization of
state-owned enterprises because of its effects on the socioeconomic interests of the poor and the working
class.The goal of the
privatized companies will be maximization of profits for shareholders, not
provision of services to the poor.The
result will be job losses
and increased costs for the services.

A
bill to corporatize Eskom has already been adopted
over strong opposition from COASTU.COSATU has noted that once corporatized Eskom
will have to pay tax.In the past few
years Eskom has spent about R1 billion a year to extend electricity to poor
households in exchange for not paying tax.But the government is only planning to spend R600 million a year for
electrification over the next three years.The government is expected to send a Telecommunications Amendment Bill,
providing the necessary framework for the initial public offering (IPO) of
Telkom to Parliament in the near future.The bill will be opposed by COSATU, especially the Communications
Workers Union (CWU).The CWU, which sees
the U.S.
as responsible for pushing privatization, handed over memorandums to the U.S. Embassy in Pretoria on the
9th July 2001 and picketed outside the
American embassy in Durban.The U.S.company
SBC Communications owns a minority stake in Telkom acquired in 1997.

COSATU has
indicated that it will launch industrial action, including a possible two-day
stay-away at the end of August, against the government's privatization policy.It has given notice to the government and
management of possible protest actions over privatization through the National Economic, Development and Labour Council (Nedlac).COSATU is demanding that government halt all privatization
initiatives pending the establishment of a clear policy and legislation to
guide restructuring.It is also
demanding no restructuring if it negatively impacts on the poor, whether by
constraining provision and extension of basic services or by aggravating job
losses.

While the ANC and COSATU are still allied, the
economic debate has placed strains on the relationship.The Tripartite Alliance, formed in the
struggle against apartheid, links the ANC, COSATU and the South African Communist
Party (SACP).The ANC and its allies are set to meet in
August to discuss policy differences on the economy and privatization that have
strained the partnership.

Coalition
for a Basic Income Grant

On
July 3 a group of 12 organizations announced the formation of a coalition of
"South Africans for a Basic Income Grant."They propose a grant of R100 per month (about
$12) for all South Africans.In a
declaration they noted "At least 22 million people in South Africa — well over half the
population — live in abject poverty.On
average they survive on R144 per person per month."They say a R100 monthly grant would double
the amount available for consumption by people in the poorest 29 percent of the
population and close the poverty gap by more than 80 percent.The proposed grant would be financed by a
progressive taxation system and net costs after tax offsets would be R20 to R25
billion annually.Endorsers of the
platform include Black Sash, COSATU, the South African Council of Churches, the
South African National NGO Coalition (SANGOCO), the Southern African Catholic
Bishops' Conference and the Treatment Action Campaign.

Conclusion

Economic
growth, poverty reduction and job creation remain key goals of economic
policy.The South African government has
made significant progress in meeting the goals of the RDP: providing housing,
basic services, health care and land reform.The lives of millions of people have been improved.The government says GEAR and privatization
are the best long-term way to achieve this growth.

But
much remains to be done.The
macroeconomic policy known as GEAR is seen by many as being in direct conflict
with the goals of the RDP, the reduction of poverty and a more equal division
of wealth.South Africa remains a divided economy
with the vast majority of the poor being Black and most of the wealthy
white.Economic growth is insufficient
to reduce unemployment.Though jobs have
been created in the informal sector they have been lost in the formal
sector.Millions of people still need
adequate housing, basic services and land.To achieve and maintain the goals set out in the RDP South Africa needs
growth.

Some
of the strongest criticisms of government policy comes from those who are
allied with and/or members of the ANC.COSATU sees GEAR as unsuited for the particular conditions of South Africa and privatization as
leading to job losses and a threat to access and affordability of basic
services.The coalition proposing a
basic income grant is an example of the kinds of initiatives to which the
democratic South African government will have to respond.The government faces protests from the
homeless over lack of housing and from those threatened eviction from their
homes because they cannot afford to pay their mortgage bonds.Perhaps the most poignant challenge facing South Africa is how it will balance its
fiscal policy and its goal of attracting foreign investment with the pressing
needs of its people for jobs, housing, land, education and health care –
defined as rights in its constitution.

Sources: Statistics South Africa,
South African Reserve Bank, Department of Trade and Industry, National Economic
Labor and Development Institute, the Reconstruction and Development Programme, South African Press Agency, COSATU.

Spelling:There are minor differences between South
African English and U.S. spelling of words.In quotes of text and titles from South Africa the original spelling has
been used.